March 11, 2014
D. KEITH MELENYZER
PAUL A. TERSHEL, Appellant D. KEITH MELENYZER, Appellant
PAUL A. TERSHEL
Appeal from the Judgment Entered July 3, 2012, in the Court of Common Pleas of Washington County Civil Division at No. 99-5200
BEFORE: FORD ELLIOTT, P.J.E., OTT AND MUSMANNO, JJ.
FORD ELLIOTT, P.J.E.
This appeal and cross-appeal arise from a complaint in equity filed by appellee/cross-appellant D. Keith Melenyzer ("Melenyzer"), seeking an accounting and dispersion of the assets of his law partnership with appellant/cross-appellee Paul A. Tershel ("Tershel"), following the dissolution of the partnership. Finding no error, we will affirm the judgment entered below.
During a prior interlocutory appeal from this case, a panel of this court accurately summarized the factual background:
In 1983, [Tershel] and [Melenyzer], along with Daniel Chunko, formed the law partnership of Melenyzer, Chunko & Tershel. On August 25, 1986, Chunko signed a contingent fee agreement on behalf of the partnership of Melenyzer, Chunko & Tershel with client, Kenneth Meek. Meek had been involved in a serious accident involving a defective automobile. On December 1, 1986, Chunko withdrew from the partnership. [Tershel] and [Melenyzer] formed a new partnership, Melenyzer & Tershel, on December 30, 1986. Meek's case became the property of the Melenyzer & Tershel partnership. According to the terms of the partnership agreement signed by Chunko, [Tershel] and [Melenyzer] secured complete possessory and ownership interest in all Melenyzer, Chunko & Tershel cases.
In the new partnership, fees were split equally between the two partners. The partnership shared a common fund into which proceeds from contingent fee cases were to be placed for distribution in accordance with the agreement.
In 1993, the Meek case went to trial. On February 11, 1993, the jury returned a verdict in favor of Meek for over seven million dollars. Meek was also awarded delay damages for a total award of nearly eleven million dollars. The partnership represented Meek on appeal to thls Court, and, on March 20, 1996, we affirmed the judgment. Meek v. Chrysler, 679 A.2d 264 (Pa.Super. 1996). In 1999, our Supreme Court denied allowance of appeal. Meek ex rel. Conte v. Chrysler Corp., 559 Pa. 377, 740 A.2d 1138 (1999). By this time, the judgment with interest had grown to over fifteen million dollars, the partnership being entitled to 50% as per their contingency agreement.
The current matter arose when both parties agreed to dissolve the partnership of Melenyzer & Tershel. In 1999, [Melenyzer] initiated action against [Tershel], as the parties disagreed regarding the terms by which dissolution should occur, specifically the date of dissolution and accounting among partners. [Melenyzer] asserts that the dissolution occurred on January 1, 1997 when each party formed a new law firm. [Melenyzer] submitted into evidence a letter written by [Tershel] dissolving Melenyzer & Tershel as of January 1, 1997. [Tershel] asserts dissolution occurred on December 31, 1995, and during 1996 the parties engaged in a winding up period.
On August 27, 2002, a bench trial began [before Judge David L. Gilmore] and continued for eight days. The trial court found, absent a contrary agreement, the Uniform Partnership Act (UPA) [footnote 2: 15 Pa.C.S.A. §§ 8301-8365.] applied and any income generated through the winding up of unfinished business be allocated to the partners based upon their interest in the partnership. The trial court found that dissolution occurred on January 1, 1997. The trial court also found all fees on any case originating before that date are assets of the partnership to be split equally between the parties. Additionally, the trial court found that all contingent fee cases originated before the date of dissolution shall be split equally, with appropriate credit for work performed after the date of dissolution at a rate to be determined by the court. Finally, the trial court found if the parties are unable to agree to the accounting of all fees, the court will appoint a Receiver to properly account.
On December 31, 2003, the trial court entered a decree nisi. [Tershel] filed a motion for post-trial relief which was dismissed as premature. On August 4, 2004, this Court granted [Tershel's] petition for review.
Melenyzer v. Tershel, No. 1364 WDA 2004, slip memorandum (August 5, 2005) at 1-4.
During that prior appeal Tershel presented a single issue:
Whether the Trial Court erred when it determined that the Pennsylvania Uniform Partnership Act mandates that all unresolved contingent fee cases originating during the term of a law-partnership are partnership assets, that the partner chosen by the client to handle contingent fee cases post-dissolution had a fiduciary obligation to his former partner to complete the cases, and that all fees received post-dissolution are partnership assets.
Id. at 4. This court held on appeal that the unresolved contingent fee cases originating during the term of the partnership were properly considered partnership assets and that any fees received post-dissolution were likewise partnership assets. The case was then remanded.
Unfortunately, during the appeal of the case, Judge Gilmore passed away. It was Judge Gilmore's intent that the case would be resolved in three phases. In the first phase, the court would determine the terms of the Melenyzer and Tershel partnership and the date of its dissolution. This was essentially the phase that had been completed on December 31, 2003 with the entry of the initial decree following a trial on those issues. In the second phase, the court would resolve Tershel's affirmative defenses and counterclaims to Melenyzer's complaint in equity. Finally, in the third phase, the court would perform a valuation of the assets to be divided and then direct payment.
When the case was remanded, it was assigned to Judge Katherine B. Emery for trial on Tershel's affirmative defenses and counterclaims as well as valuation. Tershel moved for a trial de novo on all issues, including the terms of the partnership and its date of dissolution. On October 30, 2006, Judge Emery denied the motion and filed an opinion. Therein, Judge Emery analyzed the cases relied on by Tershel and determined that they were inapposite. Judge Emery ruled that under the doctrine of law of the case and the coordinate jurisdiction rule, she was bound by Judge Gilmore's findings that the date of dissolution was January 1, 1997, and that any fee cases originating before that date belonged to the law firm and were to be split equally between Melenyzer and Tershel.
Thereafter, hearings were held pertaining to Tershel's various affirmative defenses and counterclaims. On October 31, 2008, Judge Emery entered a second order and opinion. Therein, she found merit to some of Tershel's claims, including that Melenyzer failed to disclose fees generated in partnership cases, failed to deposit funds, diverted funds to himself, failed to pay certain rent, and that Melenyzer failed to use his best efforts in generating income and performing work for the partnership from 1990 to 1995. Ultimately, the court determined that Tershel was entitled by these losses to offsets against Melenyzer's share of the Meek proceeds. Following valuation proceedings, on February 17, 2012, the court divided the Meek escrow account,  allocating $3, 775, 176 to Melenyzer and $1, 048, 469 to Tershel in set-offs. Following the entry of judgment, Tershel filed this timely appeal and Melenyzer responded with his timely cross-appeal.
On appeal, Tershel raises the following:
IN A LAW PARTNERSHIP DISPUTE OVER POST DISSOLUTION FEES, DID THE TRIAL COURT COMMIT AN ERROR OF LAW IN RULING THAT IT WAS BOUND BY THE PREDECESSOR JUDGE'S INTERIM FINDINGS, AFTER HEARING NEW EVIDENCE AND MAKING NEW FINDINGS THAT THE PLAINTIFF/PARTNER IS GUILTY OF "UNCLEAN HANDS" AND OF VIOLATING HIS PARTNERSHIP DUTIES, IN:
- DESTROYING KEY EVIDENCE REGARDING THE PARTNERSHIP AGREEMENT;
-DIVERTING PARTNERSHIP FEES TO HIS OWN USE;
-FAILING TO USE HIS BEST EFFORTS FOR THE LAST SEVEN YEARS OF THE PARTNERSHIP.
Tershel's brief at 4.
We begin our analysis with our standard of review:
When reviewing an equitable decree, "our standard of review is limited. We will reverse only where the trial court was palpably erroneous, misapplied the law or committed a manifest abuse of discretion. Where there are any apparently reasonable grounds for the trial court's decision, we must affirm it." Viener v. Jacobs, 834 A.2d 546, 554 (Pa.Super.2003) (citations omitted). Moreover,
The function of this Court on an appeal from an adjudication in equity is not to substitute [our] view for that of the lower tribunal; our task is rather to determine whether "a judicial mind, on due consideration of all the evidence, as a whole, could reasonably have reached the conclusion of that tribunal."
Hess v. Gebhard & Co., Inc., 570 Pa. 148, 808 A.2d 912, 920 (2002) (quoting Aiken Indus., Inc. v. Estate of Wilson, 477 Pa. 34, 383 A.2d 808, 810 (1978)). Additionally, we note that "[w]hen reviewing the results of a non-jury trial, we are bound by the trial court's findings of fact, unless those findings are not based on competent evidence." Viener, 834 A.2d at 554.
Nebesho v. Brown, 846 A.2d 721, 725-726 (Pa.Super. 2004).
Tershel first argues that Judge Emery erred in determining that she was bound by Judge Gilmore's adjudications as to the date of dissolution of the partnership and the partnership's scheme as to the ownership and even division of case fees. We find that Judge Emery properly adhered to the law of the case doctrine and the coordinate jurisdiction rule. Those precepts are well-settled:
"The law of the case doctrine sets forth various rules that embody the concept that a court involved in the later phases of a litigated matter should not reopen questions decided by another judge of that same court or by a higher court in the earlier phases of the matter." Ario v. Reliance Insurance Co., 602 Pa. 490, 980 A.2d 588, 597 (2009).
Among the related but distinct rules which make up the law of the case doctrine are that: (1) upon remand for further proceedings, a trial court may not alter the resolution of a legal question previously decided by the appellate court in the matter; (2) upon a second appeal, an appellate court may not alter the resolution of a legal question previously decided by the same appellate court; and (3) upon transfer of a matter between trial judges of coordinate jurisdiction, the transferee trial court may not alter the resolution of a legal question previously decided by the transferor trial court.
Commonwealth v. Starr, 541 Pa. 564, 664 A.2d 1326, 1331 (1995). Accordingly, under the pertinent authority, in a second appeal, this Court cannot change resolution of a legal question actually decided by a prior panel of this Court.
In re Estate of Elkins, 32 A.3d 768, 776 (Pa.Super. 2011), appeal denied, __Pa. __, . 57 A.3d 71 (2012).
Tershel has presented various cases to support his contention that Judge Emery erred in following the coordinate jurisdiction rule. During his motion for trial de novo below, Tershel cited Labyoda v. Stine, 441 A.2d 379 (Pa.Super. 1982), Ciaffoni v. Ford, 237 A.2d 250 (Pa.Super. 1968), and Hyman v. Borock, 235 A.2d 621 (Pa.Super. 1967) for the principle that where evidence is presented at hearings before a predecessor judge, a successor judge may not enter a verdict on that evidence, but instead must re-hear the case in its entirety. The critical difference between these cases and the present situation is that the predecessor judge took evidence, but did not rule on the evidence and reach an adjudication (or in the case of Ciaffoni, the adjudication that was entered was subsequently set aside). In each case, this court found that the successor judge could not simply enter an adjudication on the already assembled record, but had to re-try the case in its entirety. Instantly, however, Judge Gilmore did enter a specific adjudication on the issues presented at trial. Thus, this case is not controlled by Labyoda, Ciaffoni, and Hyman.
On appeal, Tershel abandons these cases and now relies on Hutchison by Hutchison v. Luddy, 611 A.2d 1280 (Pa.Super. 1992), appeal dismissed, 538 Pa. 484, 649 A.2d 435 (1994), for the principle that where new evidence is placed on the record, a successor trial judge is not bound by a predecessor judge's findings. Initially, we find that Tershel has waived his argument under Hutchison and is improperly raising the argument for the first time on appeal. Tershel's post-trial motion cited only to Labyoda, Ciaffoni, and Hyman, as discussed above. See Record Document No. 294, Defendant's Motion for Post-Trial Relief Pursuant to Pennsylvania Rule of Civil Procedure 227.1, Exhibit B at paragraph 29, page 45. Issues not raised in the lower court are waived and cannot be raised for the first time on appeal. Pa.R.A.P., Rule 302(a), 42 Pa.C.S.A. Although Hutchison presents a similar issue, it is different than the precise matter presented below. Nonetheless, even if properly preserved, the issue has no merit.
Hutchison involved a Blair County lawsuit against a priest and the Catholic Church over allegations of child molestation. The Luddy parties sought an order sealing the record to ensure that the Luddy parties could receive a fair trial. On December 23, 1987, Senior Judge William W. Lipsitt entered an order sealing portions of the record. On January 13, 1988, Judge R. Bruce Brumbaugh continued the seal and extended its reach. Judge Brumbaugh's order also specifically stated:
(1) the aforesaid Order of Judge Lipsitt is hereby confirmed and continued; and
(2) all pretrial discovery and all pleadings or other documents, whether heretofore or hereafter to be had and filed, shall be and remain sealed of record, with access thereto or release in any form or manner of any of the content thereof by or to anyone strictly prohibited until further order of court or the time of actual commencement of trial, whichever shall first occur.
It is neither the design nor the intent of this order either to impede the rights of the respective parties to full and complete discovery or to bar the public from trial of this case.
Hutchison, 611 A.2d at 1283, n.2 (emphasis added).
On December 13, 1988, the Pittsburgh Press Company petitioned to intervene and to unseal the record. On January 1, 1990, Judge Brumbaugh entered an order granting intervenor status; however, Judge Brumbaugh never rendered a decision as to unsealing the record. On May 29, 1990, the Hutchisons filed a motion for reconsideration of the January 13, 1988 order sealing the record based upon changed circumstances, specifically an unsealed lawsuit against the Luddy parties brought by a Hutchison brother was also proceeding in Somerset County, and that discovery was being impeded by the seal. On October 22, 1990, Judge Grine entered an order removing the seal. The Luddy parties moved for reconsideration, and on October 24, 1990, Judge Hiram A. Carpenter entered an order directing that the record continue to be sealed.
On appeal, this court held that Judge Grine was not barred by the coordinate jurisdiction rule, but could properly reconsider the order granting the seal because new evidence had come to light. We likewise find Hutchison to be distinct.
The original sealing order in Hutchison, by its very language, anticipated that it was open to reconsideration because of changed circumstances. The court stated that the record would remain sealed "until further order of court." The court also specifically stated that it did not wish to impede discovery. Thus, the original order did not represent a final adjudication by the predecessor judge. Further, the issue in Hutchison pertained merely to sealing the record of the trial. This represented a procedural issue quite apart from the actual issues in controversy in the lawsuit before the trial court. It certainly did not amount to a final adjudication of a factual matter actually in controversy at trial as is the case here. Thus, even under Hutchison, we find that Judge Emery was constrained by Judge Gilmore's prior, final adjudication.
Tershel next asserts that any recovery by Melenyzer is barred by the doctrine of "unclean hands":
In Estate of Pedrick, 505 Pa. 530, 482 A.2d 215 (1984), our Supreme Court discussed at length the doctrine of unclean hands. The doctrine "is derived from the unwillingness of a court to give relief to a suitor who has so conducted himself as to shock the moral sensibilities of the judge, and it has nothing to do with the rights or liabilities of the parties." Id. at 222 (quotations and citations omitted). The doctrine applies "where the wrongdoing directly affects the relationship subsisting between the parties and is directly connected with the matter in controversy." Id. at 223. "[T]he application of the doctrine to deny relief is within the discretion of the chancellor, and in exercising his discretion the chancellor is free not to apply the doctrine if a consideration of the entire record convinces him that an inequitable result will be reached by applying it." Stauffer v. Stauffer, 465 Pa. 558, 351 A.2d 236, 245 (1976). The court may raise the doctrine of unclean hands sua spont e. Id. at n. 10.
In re Bosley, 26 A.3d 1104, 1114 (Pa.Super. 2011).
Instantly, although the trial court noted several occasions upon which Melenyzer acted with unclean hands, it ultimately found that those instances were not related to the issue in controversy, which was the dissolution of the law firm. Among these instances are Melenyzer's failure to report fees owed to the partnership or fees improperly routed into Melenyzer's account. We agree generally with the trial court's analysis that where these instances were previously known to Tershel he acquiesced in them by continuing the partnership and where they were not previously known they could not be the cause of the present dissolution. Likewise, Melenyzer's history of attorney disciplinary problems was also known to Tershel long before dissolution was contemplated. There is, however, one item that does bear more analysis.
The trial court found that Melenyzer altered two deposit slips from 1996. Tershel appears to argue that the purpose for the alteration was to hide the fact that the parties dissolved the partnership as of December 31, 1995, and not as of January 1, 1997. If that were the case, then Melenyzer's actions could be seen as an attempt to fraudulently influence the resolution of one of the issues in controversy, the date upon which the partnership dissolved. However, Melenyzer may have altered the deposit slips not in preparation for trial to obscure the dissolution date, but at an earlier time simply in order to redirect those sums to himself. The trial court did not give a clear indication of its opinion on this issue. At one point the court states that Melenyzer "intentionally distorted two deposit slips to avoid accounting for those fees, " but at another point the court states that the altered deposit slips bolstered Tershel's position. (Trial court opinion, 10/31/08 at 4-5; 7.) Ultimately, however, the court did not find that the altered deposit slips related to the matter in controversy and did not amount to an instance of unclean hands as to bar recovery by Melenyzer. We find no abuse of discretion therein.
We find that it is highly unlikely that Melenyzer altered the deposit slips to contest Tershel's proposed dissolution date of December 31, 1995. Melenyzer had little to gain in doing so and everything to lose. The "prize" in this litigation for Melenyzer was the right to share in the huge proceeds from the Meek case. That right accrued regardless of whether the partnership dissolved on December 31, 1995 or on January 1, 1997, because the partnership obtained the rights to the proceeds from the Meek case on December 30, 1986, when Daniel Chunko relinquished those rights. Moreover, the greatest expenses and workload on the Meek case were completed before December 31, 1995, because the jury verdict came in on February 11, 1993. All that Melenyzer would gain from the Meek case by extending the dissolution date would be those sums Tershel would be owed for handling the Meek case on appeal to this court because that appeal was not resolved until March 20, 1996 which was after Tershel's December 31, 1995 dissolution date. Even there, most of the expenses and workload connected to that appeal would likely have been expended prior to December 31, 1995. Thus, Melenyzer would gain very little by extending the dissolution date, but potentially stood to lose millions if he came to court with fraud on his hands in attempting to extend it. In sum, we find that the trial court properly ruled that the instances of unclean hands by Melenyzer did not relate to the matter in controversy and did not bar recovery.
Next, Tershel argues that Melenyzer should be barred from recovery because he breached his fiduciary duty to the partnership both through his failure to report fees and the diversion of partnership fees to himself, as well as by failing to maintain a full workload and thereby put forward his best efforts for the partnership during the years 1990 through 1995.
As for the breach of fiduciary duty arising from the failure to report, or the diversion of fees, Tershel cites Cohen v. Katz, 242 A.D.2d 448, 662 N.Y.S.2d 40 (N.Y.A.D. 1997) for the principle that under these circumstances a partner's demand for an accounting must be dismissed. We first note that Cohen is a non-binding decision from another jurisdiction. Second, upon a review of Cohen, we find that the basis for dismissal was unclean hands and not breach of fiduciary duty. We have already discussed why unclean hands does not bar recovery here. Finally, we are not going to engage in an assay of Pennsylvania law to determine if breach of a fiduciary duty may bar recovery by a partner seeking an accounting. It is not the obligation of this court to perform an appellant's legal research for him. If Pennsylvania authority exists for this principle, it was Tershel's obligation to bring it to our attention.
As for breach of fiduciary duty based on a failure to put forth best effort on behalf of the partnership, under the circumstances of this case, we find that Melenyzer's actions do not constitute a breach of fiduciary duty. The trial court examined the evidence of Melenyzer's declining work output:
The Court finds that Keith Melenyzer failed to use his best efforts in generating income and performing work on behalf of the partnership from 1990 through 1995. His hours of work steadily declined. (Ehibit Q-5). Keith Melenyzer's explanation that the hours reflected in the partnership records could not be correct is not persuasive. His offering that his hours spent as solicitor for various municipalities might not be reflected in the records because he was on retainer is accepted but even so, the hours worked reflect a less than full time status.
The Court also finds that Paul Tershel was initially accepting of the fact that Melenyzer performed less hours than he worked. However, beginning in 1990, Melenyzer's hours slipped significantly, and the partners agreed to some adjustments, particularly Melenyzer reported to the Washington Office for some period every week. When the work continued to slide, Tershel had a discussion with Melenyzer in 1993 about what Tershel characterized as Melenyzer's obvious desire to retire. It was at this point that Tershel was no longer in agreement with Melenyzer's obvious "slacking off." Both parties indicated that Keith Melenyzer wanted to retire, but he needed a stream of income to support his retirement. In 1995, they developed a plan whereby Keith Melenyzer would run for County Commissioner and become a salaried elected official and retire from the practice of law and the partnership.
Trial court opinion, 10/31/08 at 10-11.
The trial court did not find that Melenyzer was barred from recovery by these actions, but did find that Tershel was owed a set-off. Frankly, we are not convinced that not working hard enough rises to the level of a breach of fiduciary duty. Tershel has not provided case law to that effect. Moreover, Tershel accuses Melenyzer of "deceptively" breaching his contractual duties,  yet it seems Tershel was well aware of Melenyzer's work habits. In point of fact, in some regard Tershel acquiesced in Melenyzer's slackening work efforts. In sum, we find that the trial court was correct in finding no breach of fiduciary duty and no bar to recovery, but instead assessing a set-off for Melenyzer's lack of effort from 1990 through 1995.
In his last issue, Tershel cites to Hofelich v. King, 2007 WL 530083 (Ohio App. 8 Dist.), Not Reported in N.E.2d., for the proposition that a former law partner may not collect half of the contingent fees of the other partner on the other partner's cases pending at dissolution, but not recovered until after dissolution. Tershel again relies upon non-binding case law from another jurisdiction, which also was not officially reported. More importantly, this was the precise issue that was decided during the prior interlocutory appeal of this case. It is now the law of the case that Melenyzer is entitled to half the proceeds from contingent fee cases acquired by the partnership prior to dissolution, even where recovery is not made until post-dissolution. There is no merit here.
We now turn to Melenyzer's issues raised on cross-appeal. In those issues, Melenyzer argues that the evidence does not support the set-offs made by Judge Emery; as such he is essentially contending that the verdict is against the weight of the evidence.
In evaluating a claim that a verdict is against the weight of the evidence, Pennsylvania courts employ a shocks-the-conscience litmus. The trial judge's uthority to award a new trial on weight-of-the-evidence grounds is narrowly circumscribed on account of the principle that credibility questions are exclusively for the fact finder. The matter is couched as discretionary in the trial court, with its role in the assessment being afforded primacy in view of its substantially closer vantage to the evidentiary presentation as compared to that of an appellate court. Relief is available in an appellate court only if it can be said that the trial court acted capriciously or palpably abused its discretion.
O'Kelly v. Dawson, 62 A.3d 414, 418 (Pa.Super. 2013), quoting Hatwood v. Hospital of the University of Pennsylvania, 55 A.3d 1229, 1238 (Pa.Super.2012). Simply stated, we see no palpable abuse of discretion in Judge Emery's evaluation of the evidence and her decision to grant the set-offs.
Melenyzer also complains that some of the set-offs address matters many years old or that the set-offs are unauthorized by law or pertain to years not in dispute. We remind Melenyzer of the ancient precept, "he who seeks equity must do equity." Sprague v. Casey, 520 Pa. 38, 46, 550 A.2d 184, 188 (1988). Melenyzer sought an accounting in equity and received precisely that. He complains that Tershel raises matters from many years ago and that there are years not in dispute. The accounting Melenyzer sought by necessity applied to every year of the partnership and to every transaction that occurred during that time. We find that the court appropriately applied whatever set-offs were required to do equity and that such actions were lawful. We see no error.
Accordingly, having found no error, we will affirm the judgment entered below.
Judgment affirmed at No. 1204 WDA 2012 and at No. 1211 WDA 2012.